1. An option has strike price of $28 and 4 months to expiry. The current price of the underlying share is $18 and its volatility (sigma) is 66%. The riskfree rate of interest is 4% per annum.

Calculate d2 for this option. [your answer should have at least 2 decimal places]

2.

The volatility (sigma) of a stock is 24% per annum. We will model stock-price movements using a Binomial tree, where each branch of the tree has a step length (delta t) of 2 months.

Calculate the proportion down movement (d) that applies to each branch of the tree.

Your answer should have at least two decimal places.

3.

We model the movement of stock prices using a Binomial tree. Each branch of the tree spans a time horizon of 4 months. The proportional down movement on the tree (d) is 0.85.

What is the volatility of the stock implied by d? If your answer is (say) 40%, enter 0.40.